The Research On Trading Strategies For Forward Contracts In Power Market Based On Option Theory

The distinctive feature of electricity market is that: as the commodity of electricity market, the electrical energy can not be stored, and the equilibrium price of electricity market is random as the result of transient balance between the supply and demand of electrical energy; owing to limited capacity of the electric generating set and transmission line and low elasticity of demand, the electricity price is marked by its jump and peak-to-trough characteristic; as the result of the existence of oligopoly in the electricity market, the fluctuation of price become more complicate, electrical energy has become one commodity whose price is most likely to change ever since the market operation of power industry. The variability of electricity price made every participant confront great loss in interests. Therefore, the risk that is confronted by the electricity market is very severe.Electricity forward contract is widely used as an effective means to dodge risk. By forward contract, the electricity energy can be stored virtually, which illustrated that the forward market can provide some kind of beforehand protection which is similar to other storable commodities. Therefore, electricity forward contract is favorable for sound development of electricity market, and proper forward contract trade is also favorable for the stability of electricity market.Electricity options is an effective management tool for the risk of electricity price, apart from the basic risk management function of financial options and general commodity options, the electricity options should have some special applications in electricity market according to the unique technical-economic feature of power industry and electricity market.According to the reality of electricity of our country, the theory of options can be introduced to electricity forward contract to establish a new kind of strategic model of electricity forward contract based on the theory of options, which will provide the both sides in the trade choices of more flexibility and elasticity. The strategic model of electricity forward contract based on the theory of options has the function to create different conditions of loss with a large range. If the executive price of the strategic model of electricity forward contract based on the theory of options can be any possible price, random kind of condition of profit and loss can be created in theory, which is very attractive to the investment in electricity market.